Debt

6 Months Ended

Aug. 01, 2020

Debt Disclosure [Abstract]

Debt

6. Debt

On August 3, 2018, the Company entered into a senior secured credit facility, which provided a $40.0 term loan, and $13.5 million of subordinated promissory notes (the “Junior Notes”). The credit facility was amended on January 30, 2019 to provide an additional term loan of $5.3 million. The term loans generally require quarterly principal payments and monthly interest payments based on LIBOR plus a margin.  The additional $5.3 million term loan also requires interest of 3.0% payable in kind with such interest being added to the principal balance of the loan.  The term loans are secured by substantially all the assets of the Company and are guaranteed by the Company’s subsidiaries.  The Junior Notes mature in November 2021, and they are secured by a second priority lien on substantially all of the assets of Company and guaranteed by the Company’s subsidiaries.  Interest is generally payable monthly on the Junior Notes, but no periodic amortization payments are required.  The Junior Notes are subordinated in rights of payment and priority to the term loans but otherwise have economic terms substantially similar to the term loans.  The weighted-average interest rate on both the term loans and Junior Notes at August 1, 2020 was 11.0%.

The term loans are generally subject to a borrowing base and include financial covenants and obligations regarding the operation of the Company’s business that are customary in facilities of this type, including limitations on the payment of dividends.  Financial covenants include the requirement to maintain specified levels of Adjusted EBITDA, as defined in the agreement, and maintain a specified level of cash on hand. The Company is required to maintain a borrowing base comprising the value of the Company’s trademarks that exceeds the outstanding balance of the term loans.  If the borrowing base is less than the outstanding term loans at any measurement period, then the Company would be required to repay a portion of the term loans to eliminate such shortfall.  Events of default include, among other things, the occurrence of a change of control of the Company, and a default under the term loans agreement would also trigger a default under the Junior Notes agreements.

The Company’s operating results for the twelve months ended November 2, 2019 and February 1, 2020 resulted in violations of the minimum Adjusted EBITDA covenant, which are events of default, and the valuation report prepared by the Company’s senior secured lender during the first quarter of Fiscal 2021 indicated that the Company’s borrowing base is less than the outstanding term loan balance.  However, the Company’s senior secured lender has agreed to forbear from enforcing its rights under the senior secured credit facility in response to these events of default and borrowing base shortfall, and on September 1, 2020, the senior secured credit facility was amended, and the forbearance agreement was extended through December 31, 2020 (the September 2020 Forbearance Agreement). (See Note 1, Liquidity and Going Concern).  In conjunction with the September 2020 Forbearance Agreement, the senior secured credit facility was amended to (i) reduce the Adjusted EBITDA requirement to $6.5 million during the forbearance period, (ii) reduce the minimum cash requirement to $100,000 during the forbearance period, (iii) defer the quarterly principal payment otherwise due during the forbearance period and (iv) accept interest payments in the form of additional principal rather than in cash during the forbearance period, other than approximately $85,000 per month beginning with September 1, 2020.  The September 2020 Forbearance Agreement requires that a portion of the Company’s federal income tax refunds expected to be received by the Company during the forbearance period be used to pay in cash the interest previously accrued and added to the principal amount of the term loans, and also to pay down a portion of the term loans principal balance.  After such federal income tax refunds are received, monthly interest will again be required in cash, and no further interest payment obligations will be deferred and added to the principal amount of the term loans. At the conclusion of the forbearance period, the Adjusted EBITDA requirement, the borrowing base requirement and the minimum cash requirement revert to the original terms of the senior secured credit facility.  Previous forbearance agreements provided for a fee to be paid to the senior secured lender when the debt is repaid.  The September 2020 Forbearance Agreement accelerates the maturity date of the Company’s senior secured credit facility from August 3, 2021 to March 31, 2021 or to December 31, 2020 if certain milestones are not met.  The Company’s Junior Note holders agreed to accept interest payments in the form of additional principal rather than in cash from April 1, 2020 through October 1, 2020, and payments to the Junior Notes holders are generally restricted by the September 2020 Forbearance Agreement.

Outstanding borrowings under the term loans were $45.2 million at August 1, 2020 with associated unamortized debt issuance costs of $0.8 million. Outstanding Junior Notes were $14.4 million at August 1, 2020 with associated unamortized debt issuance costs of $0.2 million. As a result of the covenant violations and the short-term nature of the forbearance agreement referred to above, the total amount of the Company’s long-term debt is reflected as a current obligation in the Company’s August 1, 2020 consolidated balance sheet.

During the three months ended May 2, 2020 the company obtained a Paycheck Protection Program loan under the CARES Act totaling $0.7 million.   The Paycheck Protection Program loan bears interest at 1.0% per annum, is repayable monthly starting in October 2020, and matures in April 2022.  In addition, a substantial portion of the loan may be forgiven under provisions under the CARES Act based on payments for payroll, rent and utilities during the period subsequent to obtaining the loan.